Musings on taking technology to Bharat

The way traditional credit scores are measured today will change soon. Though there is no formal announcement about it but the technological advances in credit assessment are poised to deliver a huge impact by bringing formal, affordable and accessible credit to more than billion lower-middle-class that is hidden from digital world. Even Google doesn’t know about them. According to a Mckinsey report in September 2016, there are close to 1.6 billion individuals who are untouched by formal credit, of which 400m+ live in India.

So how does traditional credit scoring works today in India?It is dependent on a number of factors such as:

Borrowing history - includes transactions via credit card

Duration of credit

Repayment history

Credit applied

Credit balance

Do you see something unusual in it?

There’s an iceberg hidden beneathAccording to the above, the easiest way a person can maintain a good credit score is by becoming a frequent user of credit card. So only ~27m (Oct 2016, RBI data) people who are credit card users, might have good credit score. Others are dependent on borrowing history with the formal institutions - the last trail of history could be years back. What about those who do not have any formal financial history? This is the invisible 400m+ we are talking about. If it adds to the gravity of the situation, 400m+ loans were processed in 2014 but fewer than 1 in 7 formal loans were approved. It’s surprising because we live in neighbourhood of those who belong to fewer than one category.

Credit is both good and bad. Good, when you use it for good reasons and have a way to repay in time. Bad, when you use it to repay another outstanding and it gets worse when you have no clue how one is going to repay without borrowing again. Having said that, where do the lower middle class people borrow from? Private money lenders - they control highest & majority market share

Consider this, of 700m+ debit cards, 140m transactions were made in Oct 2016 (Oct 2016, RBI) - technically, only 20 transactions per 100 debit cards. There’s hardly much of digital trail to be tracked, how do we find people worthy of credit? Do you get a glimpse of the iceberg beneath? In absence of any traditional indicators, banks will rarely take a risk on them.

Times are a changin'The mini-supercomputer in our hands is becoming ubiquitous with each passing day. India is leapfrogging from wired internet to mobile internet in shortest of times possible. Today there are 150m+ broadband (3G + 4G + broadband) users compared 20m odd wired internet users (Mar 2016, TRAI). Hence those invisible to formal lenders may not remain invisible for long, thanks to rising adoption of internet. Consider this, 4 out 5 adults own a mobile phone and most of them will be smart phones by 2020. Currently, only 1 in 10 own smart phones. More than 340m Indians have access to internet and social media, as of Mar 2016. And every time these individuals make a phone call, browse internet, engage with social media or top up a prepaid card, notifications of bill payments over SMS, they deepen the digital footprints they are leaving behind.

These digital footprints are helping to spark a new revolution in lending. The non-traditional, big data is going to form basis for many small credits. Digital trails are creating new way to assess consumer risk, creditworthiness of invisible consumers and consequently offer quicker, convenient and often cheaper loans to previously underserved. Our prime offering is: unsecured, short-term, small-ticket consumer credit served at a dramatically lower cost than traditional loans offered by banks. Hence we have not only decided to score them, but also disburse loans as quickly as they borrow from an unorganised money lender - instant, unsecured and paperless.